President-Elect

Markets Plunge, then Rise, as Wall Street Prepares for President Trump

As the odds of Donald Trump winning the presidency ticked inexorably higher over the course of several agonizing hours Tuesday night, global markets dropped accordingly. Dow futures plummeted more than 700 points, the Mexican peso dropped, and the U.S. Treasury yields swung into reverse. Sean Callow, a forex strategist at Westpac described Asian markets tumbling as a response to election forecasts “as though the four horsemen of the apocalypse just rode out of Trump Tower.” But the panic was short-lived, and European markets responded with less volatility. As the world moved out of its denial phase and into acceptance of the idea of Trump winning the election—and, yes, actually becoming the leader of the free world—the markets began to stabilize. Rumors of a Brexit-like global-market crash appear to be exaggerated, at least for now, even if investors remain on edge.

Investors have plenty of reasons to be nervous about a Trump presidency. The real-estate billionaire is a staunch opponent of free trade, raising the possibility of a trade war with China or higher tariffs on imported goods. While markets were buoyed by the increased likelihood that the election results will discourage the Federal Reserve from raising interest rates next month, the political independence of the Fed is also in question. Trump’s proposals “ultimately threaten to undermine global faith in the independence of the Federal Reserve and the geopolitical standing of the United States,” T. Rowe Price’s chief U.S. economist Alan Levensontold clients on Tuesday night in a note. And Fed Chair Janet Yellen may not last in her role in a Trump administration.

After the U.K. voted to leave the European Union earlier this year, markets initially plunged, but bounced back within a week, though fears of a recession still lingered. Trump is considered to be an unpredictable leader, though if history is any indication, his presidency may only be marked by a short-lived stock-market decline. “I love this country,” Trump said early Wednesday morning in his victory speech. “America will no longer settle for anything less than the best. . . . We have a great economic plan, we will double our growth, and have the strongest economy in the world.”

Several industries in particular stand to benefit from a Trump presidency, given what we think we know about how the real-estate billionaire might govern. On Wednesday, investors started biting on health care and defense stocks, which faced a mountain of pressure when investors believed Hillary Clinton would take office. The notion that there might be less regulation under a Trump presidency also gave a lift to financial services, with the KBW Nasdaq Bank Index of large U.S. commercial lenders ticking up steadily throughout the day. Stocks of the country’s two largest publicly traded prison companies soared, after plunging this summer when the U.S. Justice Department said it would be phasing out its use of for-profit prisons.